Rural Housing Service
Updated Guidance and Additional Monitoring Needed for Rental Assistance Distribution Process Gao ID: GAO-04-937 September 13, 2004The Rural Housing Service's (RHS) Section 521 rental assistance program provides rental subsidies for about 250,000 rural tenants. Because the program has a waiting list of 80,000 eligible tenants and there are over 1.3 million rural low-income renters eligible for housing subsidies, it is important to effectively distribute resources to extend assistance to as many needy tenants as possible. Therefore, GAO was asked to assess (1) how RHS distributes rental assistance funds to properties and tenants, (2) how RHS monitors the use of rental assistance funds, and (3) whether there are sufficient internal controls in place to ensure that these funds are being effectively administered and used.
RHS's national office pays rental assistance funds to property owners through a variety of contracts and transfers of unused rental assistance from one property to another. RHS staff calculate the payment amounts using information provided by tenants and verified by property owners. The current system requires RHS staff to enter payment data into the agency's database manually. However, RHS's national office is upgrading two systems to streamline the payment process. But some local RHS staff are concerned that the new process may eliminate a layer of review. RHS's national, state, and local offices share responsibility for monitoring the rental assistance program, with the local offices performing the primary review every 3 years. The national office outlines the monitoring activities for the rental assistance program in its Rural Development Instructions and provides other guidance, such as administrative notices and unnumbered letters. We found that state and local offices follow this guidance inconsistently and sometimes consider it unclear. National office staff are planning a number of initiatives to increase monitoring of the rental assistance program, but a number of key management positions in the national office are unfilled, which could limit the effectiveness of program monitoring. RHS's internal controls do not provide adequate oversight of rental assistance funds because RHS guidance is inadequate and tenants' incomes are not adequately verified. First, insufficient guidance on the transfer process limits RHS's ability to move unused rental assistance to properties that have tenants with the greatest unmet need. Second, the triennial supervisory review does not provide reasonable assurance that tenants income and assets, and ultimately rental assistance payments, are adequately verified. Alternate methods of verifying tenant information also have limited effectiveness but could help improve internal control if properly designed and implemented.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-04-937, Rural Housing Service: Updated Guidance and Additional Monitoring Needed for Rental Assistance Distribution Process
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Report to the Ranking Minority Member, Subcommittee on Agriculture,
Rural Development, and Related Agencies, Senate Committee on
Appropriations:
September 2004:
RURAL HOUSING SERVICE:
Updated Guidance and Additional Monitoring Needed for Rental
Assistance Distribution Process:
GAO-04-937:
GAO Highlights:
Highlights of GAO-04-937, a report to Ranking Minority Member,
Subcommittee on Agriculture, Rural Development, and Related Agencies,
Senate Committee on Appropriations.
Why GAO Did This Study:
The Rural Housing Service‘s (RHS) Section 521 rental assistance
program provides rental subsidies for about 250,000 rural tenants.
Because the program has a waiting list of 80,000 eligible tenants and
there are over 1.3 million rural low-income renters eligible for
housing subsidies, it is important to effectively distribute resources
to extend assistance to as many needy tenants as possible. Therefore,
GAO was asked to assess (1) how RHS distributes rental assistance funds
to properties and tenants, (2) how RHS monitors the use of rental
assistance funds, and (3) whether there are sufficient internal
controls in place to ensure that these funds are being effectively
administered and used.
What GAO Found:
RHS‘s national office pays rental assistance funds to property owners
through a variety of contracts and transfers of unused rental
assistance from one property to another. RHS staff calculate the
payment amounts using information provided by tenants and verified by
property owners. The current system requires RHS staff to enter
payment data into the agency‘s database manually. However, RHS‘s
national office is upgrading two systems to streamline the payment
process. But some local RHS staff are concerned that the new process
may eliminate a layer of review.
RHS‘s national, state, and local offices share responsibility for
monitoring the rental assistance program, with the local offices
performing the primary review every 3 years. The national office
outlines the monitoring activities for the rental assistance program
in its Rural Development Instructions and provides other guidance,
such as administrative notices and unnumbered letters. We found that
state and local offices follow this guidance inconsistently and
sometimes consider it unclear. National office staff are planning a
number of initiatives to increase monitoring of the rental assistance
program, but a number of key management positions in the national
office are unfilled, which could limit the effectiveness of program
monitoring.
RHS‘s internal controls do not provide adequate oversight of rental
assistance funds because RHS guidance is inadequate and tenants‘
incomes are not adequately verified. First, insufficient guidance on
the transfer process limits RHS‘s ability to move unused rental
assistance to properties that have tenants with the greatest unmet
need. Second, the triennial supervisory review does not provide
reasonable assurance that tenants income and assets, and ultimately
rental assistance payments, are adequately verified. Alternate methods
of verifying tenant information also have limited effectiveness but
could help improve internal control if properly designed and
implemented.
How RHS Uses Information from Tenants to Determine Rental Subsidies:
[See PDF for image]
[End of figure]
What GAO Recommends:
GAO recommends that the Secretary of Agriculture require that program
officials establish centralized guidance on transferring unused rental
assistance, improve sampling methods to select tenant household files
for supervisory reviews, and improve verification of tenant
information. To help the agency verify tenant information, Congress
may wish to consider giving RHS access to the Department of Health and
Human Services‘ National Directory of New Hires.
The Department of Agriculture generally agreed with GAO‘s
recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-04-937.
To view the full product, including the scope and methodology, click on
the link above. To view the survey results, click on the following
link [www.gao.gov/cgi-bin/getrpt?GAO-04-978SP]. For more information,
contact William B. Shear at (202) 512-4325 or shearw@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
RHS Distributes Rental Assistance Funds through Contracts and Sets Per-
Unit Payments Based on Tenants' Verified Income Levels:
RHS's National and State Offices Monitor the Use Of Rental Assistance,
with Local Offices Performing the Primary Review Every 3 Years:
RHS's Internal Controls Do Not Provide Adequate Oversight of Rental
Assistance Funds:
Conclusions:
Recommendations for Executive Action:
Matter for Congressional Consideration:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Scope and Methodology:
Appendix II: State Office Survey Responses for Rural Rental Housing
(RRH) Properties:
Appendix III: State Office Survey Responses for Off Farm Labor Housing
(FLH) Properties:
Appendix IV: Comments from the U.S. Department of Agriculture:
Appendix V: GAO Contacts and Staff Acknowledgements:
GAO Contacts:
Staff Acknowledgments:
Table:
Table 1: Triennial Supervisory Review Workload, Selected RHS Local
Offices:
Figures:
Figure 1: Duties of RHS National, State, and Local Offices:
Figure 2: Rental Assistance Distribution Process:
Figure 3: How RHS Uses Information from Tenants to Determine Rental
Subsidies:
Figure 4: Centralized and Decentralized Processing, by State:
Figure 5: Key Management Positions in the Rural Housing Service, as of
July 2004:
Figure 6: Frequency of Supervisory Reviews of Tenant Household Files:
Figure 7: Process Used to Verify the Accuracy of Rental Assistance
Payments:
Figure 8: States with Wage-Matching Agreements:
Abbreviations:
AMAS: Automated Multi-Housing Accounting System:
FLH: Farm Labor Housing:
HUD: U.S. Department of Housing and Urban Development:
MFIS: Multi-Family Housing Information System:
MINC: Management Agency Interactive Network Connection:
RD: Rural Development:
RHS: Rural Housing Service:
RRH: Rural Rental Housing:
USDA: U.S. Department of Agriculture:
Letter September 13, 2004:
The Honorable Herbert Kohl:
Ranking Minority Member:
Subcommittee on Agriculture, Rural Development and Related Agencies:
Committee on Appropriations:
United States Senate:
Dear Senator Kohl:
The Rural Housing Service (RHS) of the U. S. Department of Agriculture
(USDA) provides rental subsidies through the Section 521 rental
assistance program to about 250,000 low-income rural tenants living in
federally subsidized properties.[Footnote 1] The rental subsidies,
which are provided to property owners through multiyear contracts, are
intended to limit tenants' rent payments to 30 percent of the
household's adjusted monthly income. With a fiscal year 2004 budget of
almost $600 million, the program is RHS's largest line-item
appropriation. Given its size, internal controls are a significant
factor in administering the program in order to distribute resources
effectively and reduce the possibilities for fraud, waste, and abuse.
Because the program already has a waiting list of 80,000 eligible
tenants and over 1.3 million low-income renters not receiving housing
subsidies reside throughout rural America, effectively distributing
resources is important in extending assistance to as many needy tenants
as possible.[Footnote 2]
We recently reported on the activity level of rental assistance
contracts and the accuracy of RHS's budget estimates for the Section
521 rental assistance program.[Footnote 3] To further assist you in
your oversight of the program, you also asked us to assess (1) how RHS
distributes rental assistance funds to properties and tenants, (2) how
RHS monitors the use of rental assistance funds, and (3) whether RHS
has sufficient internal controls in place to ensure that these funds
are being effectively administered and used.
To respond to these objectives, we collected written information from
RHS and talked with its representatives about the processes for
distributing rental assistance and the means of monitoring those
processes. We reviewed RHS's guidance for the program and internal
control standards that apply to the processes. We also conducted a
nationwide survey of all RHS state and local offices with rental
assistance responsibilities. Finally, we visited RHS state and local
offices and property owners or managers in five states to obtain
documentation related to specific aspects of the rental assistance
distribution process and to observe how RHS staff implement the
internal controls that RHS has established to oversee the program.
Details of our scope and methodology appear in appendix I, and
appendixes II and III contain state office responses to a number of
survey items. The survey and a more complete tabulation of the results
can be viewed at [Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-
978SP] www.gao.gov/cgi-bin/getrpt?GAO-04-978SP.
We conducted our work from September 2003 through June 2004 in a number
of locations, including Connecticut, Massachusetts, Mississippi, New
York, South Carolina, Utah, and Washington, D.C., in accordance with
generally accepted government auditing standards.
Results in Brief:
Rental assistance funds are paid monthly to property owners through
multiyear, renewable contracts that designate a set amount of funding
per rental unit in RHS-subsidized properties. Property owners may also
request that RHS transfer unused rental assistance from one property to
another. The actual amount of the payments property owners receive is
calculated using information provided by tenants, verified by property
owners, and reviewed by staff at RHS state and local offices. Plans to
streamline the payment process are under way, but some RHS staff are
concerned that the new process may eliminate a layer of review.
Responsibility for monitoring the rental assistance program is divided
among RHS's national, state, and local offices, with the local offices
performing the primary review of the rental assistance distribution
process. The national office provides guidance on procedures for
monitoring the distribution of rental assistance funds, but we found
that state and local offices apply the guidance inconsistently and that
some of these offices consider it unclear. Following the guidance,
local offices conduct supervisory reviews every 3 years, and these
reviews are RHS's primary tool for detecting misreporting of tenant
income, and ultimately, unauthorized rental assistance payments.
Initiatives to increase monitoring of the rental assistance program are
under way at the national office. However, unfilled management
positions at the national level could limit RHS's ability to
effectively monitor the program.
RHS's internal controls do not provide adequate oversight of rental
assistance funds. First, insufficient and unclear guidance on the
transfer process limits RHS's ability to transfer unused rental
assistance to properties with the most needy tenants. Second, RHS's
triennial supervisory reviews, the primary internal control activity to
verify the information tenants and property owners submit, are
conducted infrequently using samples that may be too small to
effectively mitigate the risks associated with providing unauthorized
rental assistance. RHS uses alternate methods, such as internal
database checks and wage matching, to verify tenant and payment
information. These methods have limited effectiveness in governing the
rental assistance distribution process but could help to improve
internal control if they were properly designed and implemented.
This report contains three recommendations for executive action and one
matter for congressional consideration.
* To ensure that rental assistance funds are effectively distributed to
properties that have tenants with the greatest need in the multifamily
housing portfolio, we recommend that the Secretary of Agriculture
require program officials to (1) establish centralized guidance on
transferring unused rental assistance, (2) improve sampling methods to
ensure that a sufficient number of tenant household files are selected
for supervisory reviews, and (3) improve verification of tenant
information, including more effective use of alternate methods of
income verification.
* To enable RHS to improve its verification of tenant income, this
report includes a matter for congressional consideration. We recommend
that RHS be added to Section 453 (j)(7) of the Social Security Act,
"Information comparisons for housing assistance programs."[Footnote 4]
This action would give RHS access to the National Directory of New
Hires administered by the Department of Health and Human Services.
In response to our recommendations, RHS agreed to provide centralized
guidance on transferring unused rental assistance through a new
administrative notice and to institute broader use of alternate income
verification methods, such as improved access to wage matching and new
hires data. However, RHS did not agree to change its sampling methods
for selecting tenant files when performing supervisory reviews.
Instead, RHS said that it would revamp the supervisory review process
to improve its effectiveness and consistency. We agree that the
supervisory review process should be revised to improve its
effectiveness and consistency and are encouraged that USDA is taking
steps to accomplish this. However, to make this process an effective
control to provide reasonable assurance that rental assistance payments
are correct, RHS must also improve its sampling methodology, using a
statistically valid sample to estimate an overall error rate. Thereby,
RHS would have a firmer basis for determining an approximate sample
size for its reviews.
Background:
The Section 521 rental assistance program, started in 1978, is
administered by RHS's Multifamily Housing Portfolio Management
Division. The program provides rental assistance for tenants living in
units created through RHS's Multifamily Direct Rural Rental Housing
Loans and Multifamily Housing Farm Labor Loans programs. These programs
provide loans subsidized with interest rates as low as 1 percent to
help build rental housing for rural residents and farm workers. Under
the rental assistance program, eligible tenants pay no more than 30
percent of their income toward the rent, and RHS pays the balance to
the property owner.[Footnote 5]
RHS allocates rental assistance subsidies through 5-year contracts with
property owners; 20-year contracts were also issued to units in newly
constructed properties from 1978 through 1982. In fiscal year 2004,
contracts were issued for a term of 4 years. The contracts specify that
owners will receive payments on behalf of tenants in a designated
number of units at the property. Contracts may be renewed as many times
as funds are made available, and additional rental assistance units may
be allocated if funds become available.
Property owners are required to follow RHS guidance in managing their
properties.[Footnote 6] Each month, they must document how many units
designated for rental assistance are occupied. If a unit is empty and
rental assistance is not being used, the property owner is required to
assign another eligible tenant. If no eligible tenants are waiting for
the unit, the property owner can work with RHS to transfer the rental
assistance to another property.
As shown in figure 1, RHS's national, state, and local offices share
administrative duties for the rental assistance program.
Figure 1: Duties of RHS National, State, and Local Offices:
[See PDF for image]
[End of figure]
The national office develops and implements regulations for the rental
assistance program and other RHS programs (Rural Development
Instructions). The current Rural Development (RD) Instruction for the
rental assistance program has been in effect since the 1980s and was
last revised in 1993. Other subparts of the RD Instructions also
outline processes for monitoring RHS programs, including the rental
assistance program. A proposed rule designed to streamline and
consolidate the RD Instructions governing the multifamily grant, loan,
and rental assistance programs was published in the Federal Register in
June 2003. The proposed rule is intended to modify tenant
recertification rules, relieve the burden on property owners of
recovering unauthorized rental assistance from tenants, and reduce the
amount of time RHS must wait before transferring unused rental
assistance.
The national office also distributes administrative notices and
unnumbered letters on an as-needed basis. Administrative notices
clarify for state and local offices activities outlined in RD
Instructions. For example, the national office plans to clarify the
tenant income verification process and provide further guidance on
monitoring unused rental assistance for transfer through forthcoming
administrative notices. Unnumbered letters, which address specific
issues and are less formal than administrative notices, relay important
information to state and local offices, but they do not pertain to
policies and procedures. For example, an unnumbered letter released in
December 2003 included data aggregated at the national office broken
down by state and by rental assistance distribution goals, such as
percentage of supervisory reviews completed, unit vacancies, and unused
rental assistance.
The national office also estimates program budgets; allocates funds;
and tracks nationwide program statistics. State and local offices work
directly with property owners, property management companies, and
tenants to monitor the program. State and local offices are responsible
for conducting financial, management, and physical reviews of the
properties; executing rental assistance contracts with property owners;
approving rent increases; and processing rental assistance payments.
State and local office staff also collect and maintain property and
tenant data for their areas.
Support for the program is also provided through two offices in St.
Louis, Missouri. The Rural Housing Service Branch of the Information
Resources Management Office maintains the database systems used to
manage program data. The Office of the Deputy Chief Financial Officer
uses the program data to generate and maintain the general ledger and
financial statements for the program. RHS uses two key database systems
to manage their multifamily housing programs, including the rental
assistance program. The Automated Multi-Housing Accounting System
(AMAS) stores data on rental assistance contract obligations, rental
assistance payments to property owners, and transfers of rental
assistance. The Multi-Family Housing Information System (MFIS) tracks
property and tenant information that determine the monthly request for
rental assistance.
As mandated by the Federal Managers' Financial Integrity Act of 1982,
the Comptroller General issues standards for internal control in the
federal government.[Footnote 7] These standards provide the overall
framework for establishing and maintaining internal control and for
identifying and addressing major performance and management challenges
and areas at greatest risk of fraud, waste, abuse, and mismanagement.
According to these standards, internal control comprises the plans,
methods, and procedures used to meet missions, goals, and objectives.
It is the first line of defense in safeguarding assets, and preventing
and detecting fraud and errors. Internal control, which is synonymous
with management control, helps government program managers achieve
desired results through effective stewardship of public resources. No
matter how well designed and operated, internal control cannot provide
absolute assurance that all agency objectives will be met, and thus,
once in place, internal control provides reasonable, not absolute,
assurance of meeting agency objectives.
RHS Distributes Rental Assistance Funds through Contracts and Sets Per-
Unit Payments Based on Tenants' Verified Income Levels:
RHS's national office provides rental assistance funds to property
owners through a variety of contracts. Rental assistance can also be
transferred, under certain conditions, from one property to another.
RHS calculates the payments property owners receive using information
supplied by tenants and verified by property owners, who then use the
information to create a tenant certification form. Tenants' income must
be certified yearly on the tenant certification form or whenever
significant changes occur--for instance, when income increases by a
specified amount. Property owners send the tenant certification form to
the responsible state or local office, where RHS staff review the
information and calculate the amount of the subsidy. In order to
receive the monthly payments, property owners must provide the
appropriate RHS office with a project worksheet-a monthly statement
showing how many units that are eligible for subsidies are occupied by
tenants in the program. Figure 2 shows the steps that are involved in
the distribution process. Plans are under way to streamline the payment
process, although local office staff are concerned this may eliminate
their chance to review the information on the project worksheet.
Figure 2: Rental Assistance Distribution Process:
[See PDF for image]
[End of figure]
Funds Are Distributed to Properties through Contracts and Transfers of
Unused Rental Assistance:
The rental assistance program provides four types of contracts:
renewal, construction, servicing, and preservation. RHS officials
report that in the last few years, 96 percent of annual rental
assistance appropriations have been used for renewal contracts--that
is, contracts that renew expiring obligations at existing properties.
Construction contracts, which support new units in recently constructed
properties, account for only 1 percent. The remaining 3 percent cover
servicing and preservation contracts. Property owners who take out
loans to rehabilitate properties and then raise rents to cover the
servicing costs associated with the loan, for example, are eligible for
servicing contracts that provide additional rental assistance to help
tenants cope with the rent increase. Preservation contracts are offered
as an incentive to property owners who are considering leaving the
program and provide subsidies for additional units on the property.
According to the authorizing statute, unused rental assistance is to be
transferred to properties where the assistance is needed. Transfers can
occur when state and local offices identify unused rental assistance at
a property or when a property owner requests such a transfer. For
example, a property owner may want to transfer unused rental assistance
from a property that has no eligible potential tenants to one that has
many. During fiscal year 2003 unused rental assistance on approximately
6,800 units, or about 3 percent of all rental assistance units--with a
total value of $67 million--were transferred through about 2,000
transactions. An RHS national office official noted that a portion of
these units were rental assistance transfers accompanying a property
transfer, during which an eligible property owner assumes another
property owner's loan.
Property owners may initiate the transfer of unused rental assistance
from their properties at any time. If the property owner has not used
the rental assistance on one or more of the covered units for any
consecutive 12-month period, RHS may transfer the unused rental
assistance, as long as at least one unit at the property remains
covered.[Footnote 8] In either case, before the transfer can occur, RHS
must verify that the rental assistance has been properly marketed by
the owner and is not needed at the current property. Property owners
may appeal decisions to transfer rental assistance from their
properties by contacting USDA's National Appeals Division, an
independent office within USDA.
RHS Makes Payments on the Basis of Information Provided by Tenants and
Verified by Property Owners:
As figure 2 shows, a number of steps take place between the time rental
assistance contracts are made or transferred and the time property
owners receive payments. The two key steps in this process involve
certifying tenants' income information on the tenant certification form
and using that information to calculate the payments to property owners
on the project worksheet. (fig. 3).
Figure 3: How RHS Uses Information from Tenants to Determine Rental
Subsidies:
[See PDF for image]
[End of figure]
RD Instructions require that tenants be certified at least annually so
that state and local office staff can document their income and
determine their rental contributions. Property owners certify tenants
initially and then every year, or when a tenant's income rises by $40
or more per month ($480 per year) or decreases by $20 or more per month
($240 per year). In these cases, the income must be verified again.
According to RD Instructions, the property owner must obtain
verification of the tenant's stated income, in writing, from the
tenant's employer. If the owner is not able to immediately obtain
written verification, the tenant's income may be temporarily verified
by examining income checks or check stubs. Income listed from other
sources, such as Social Security or public assistance, must be verified
in writing by those sources. Although tenant certifications and income
verifications help ensure accurate payments to property owners, errors
can occur when tenants do not accurately report all sources of income
or when property owners do not adequately verify them.
Calculating the amount of rental assistance and submitting the
information to RHS is the second key step. Project worksheets document
the rent and income levels of tenants for whom the property owner can
request rental assistance and calculate the amount of rental assistance
due.[Footnote 9] Property owners submit the project worksheets by mail
to state or local offices, where, according to RHS guidance, staff are
to compare the worksheet information with information from MFIS. Once
a month, MFIS also generates project worksheets, based on the previous
month's occupancy reports and the tenant certifications in the system.
RHS staff finish processing the worksheets by entering the information
into AMAS, triggering payments to the property owners.
In over half of the states, individual local offices are responsible
for processing project worksheets. However, approximately 39 percent
(17 out of 44) of the state offices we surveyed have chosen to
centralize their processing function (fig. 4).[Footnote 10]
Figure 4: Centralized and Decentralized Processing, by State:
[See PDF for image]
Note: In certain instances, RHS has a single state office for selected
groupings of states. To depict centralized status in these selected
state groupings, this figure only shades the state where the state
office is located. See appendix I for more details on RHS's state
groupings.
[End of figure]
Program officials in one of these states told us their centralized
processing center promotes consistency in administering regulatory
requirements. In another centralized state, an official stated that
their centralized payment center had helped to cut costs and increase
satisfaction, because property owners had one place to call when
questions or payment issues arose. However, program officials in two
decentralized states told us that they believed that centralized
payment systems distanced RHS staff from the properties and property
owners or managers.
RHS's Plans to Streamline the Payment Process Have Raised Concerns
about Eliminating a Layer of Review:
RHS's national office is upgrading two systems to streamline the
payment process. The Management Agency Interactive Network Connection
(MINC) is a Web-based electronic transmission process that will upgrade
the current modem-based process, known as the Industry Interface, that
property owners can use to transmit tenant certifications to RHS. RHS
will also be upgrading MFIS in order to create electronic project
worksheets, so that state and local offices will no longer be required
to enter data from the project worksheets manually into AMAS. Once the
property owners approve their electronic project worksheets through
MINC, the information will be transmitted automatically into AMAS to
trigger rental assistance payments. As of May 2004, five states have
been using the MFIS upgrade in conjunction with MINC to process
payments and the national office expects all states will be using it by
the end of calendar year 2004.
Local office staff whom we spoke with during one of our site visits
were concerned that allowing property owners to approve and submit
project worksheets electronically will eliminate the local office's
chance to review the information while entering it into AMAS. National
office staff overseeing these changes stated that electronic project
worksheets would not affect this review, because the property owner
would not be able to make any changes directly to the electronic
project worksheet if he or she did not agree with the amount of rental
assistance calculated. Rather, any modifications to the project
worksheets would have to be submitted separately to RHS.
RHS's National and State Offices Monitor the Use Of Rental Assistance,
with Local Offices Performing the Primary Review Every 3 Years:
RD Instructions provide guidance for monitoring the use of rental
assistance funds. The guidance requires reviews at the national, state,
and local levels. However, the triennial supervisory review is the
primary tool for verifying the accuracy of rental assistance payments.
National office staff are planning a number of initiatives to increase
rental assistance monitoring, but a number of key management positions
in the national office have been unfilled, potentially limiting the
effectiveness of monitoring efforts.
Guidance from the National Office Establishes Monitoring Procedures but
Is Used Inconsistently and Considered Unclear:
Two main sets of RD Instructions establish procedures for distributing
rental assistance. These include:
* RD Instruction 1930-C, Management and Supervision of Multiple Family
Housing Borrowers and Grant Recipients, particularly exhibits B and E,
which establishes criteria for tenant and property eligibility for
rental assistance, among other things.
* RD Instruction 1951-K, Exhibit A, Processing Multiple Housing
Payments, which outlines the rental assistance payment process.
Although four offices we visited reported following RD Instruction
1930-C to process tenant certifications, we found little consistency in
the guidance RHS offices used to process payments, specifically when
processing project worksheets. Three offices we visited reported using
the AMAS Online Cash Manual, which provides instructions on using the
AMAS database to process payments, but two of those offices also
reported using different parts of the RD Instructions issued by the
national office. One of these two offices reported using the RD
Instruction 1951-K. One other office was unaware of official guidance,
and another office told us that they referred questions to their AMAS
coordinator in the state office.
Likewise, two sets of RD Instructions provide explicit procedures for
monitoring the rental assistance program, including the purpose,
frequency, content, and planning and follow-up procedures:
* RD Instruction 2006-M, Management Control System, which outlines the
reviews used at the national and state office levels: the Management
Control Review and the State Internal Review; and:
* RD Instruction 1930-C, which outlines the triennial supervisory
review for local offices.
The national office conducts the Management Control Review on a 5-year
cycle to review rental assistance administration in randomly selected
states. A Management Control Advisory Group, which is made up of
national and local office employees, determines the time frames,
objectives, and work plan for the Management Control Review cycle.
Generally, the objectives are designed to assess state-level
administrative operations, including financial management, internal
control, and automated systems. RHS national office staff visit the
selected properties and review a sample of tenant household files from
each. Based on the results of the review, the national office has the
authority to make recommendations to the state offices for improving
rental assistance administration.
State offices are required to conduct the State Internal Review at
least once every 5 years. This review is designed to, among other
things, ensure that RHS local offices properly implement Rural
Development policies and procedures. During these reviews, state office
staff evaluate program and administrative functions at local offices.
Reports on the findings from these reviews are provided to the state
director.
Local offices are to conduct supervisory reviews at least every 3
years, examining a random sample of tenant household files at each
property in their portfolios, and RD Instructions mandate more frequent
reviews for delinquent or problem properties. Local office staff in one
state we visited told us that they conduct approximately one
supervisory review per month in order to review each property once
every 3 years.[Footnote 11] To conduct the review, staff are to pull a
random sample of at least six tenant household files at each property,
or review all tenant household files if the property has six units or
fewer. RHS provides sample forms including a pre-visit worksheet to
help staff sample units, plan objectives, and assemble required
documentation for each visit.[Footnote 12] Table 1 shows the number of
rental assistance units subject to triennial supervisory review at each
of the five local offices we visited.
Table 1: Triennial Supervisory Review Workload, Selected RHS Local
Offices:
State where local office is located: Connecticut;
Number of rental assistance units: 920;
Number of dedicated office staff: 2;
Number of rental assistance units per staff: 460.
State where local office is located: Mississippi;
Number of rental assistance units: 500;
Number of dedicated office staff: 4;
Number of rental assistance units per staff: 125.
State where local office is located: New York;
Number of rental assistance units: 480;
Number of dedicated office staff: 2;
Number of rental assistance units per staff: 240.
State where local office is located: South Carolina;
Number of rental assistance units: 2149;
Number of dedicated office staff: 2;
Number of rental assistance units per staff: 1075.
State where local office is located: Utah;
Number of rental assistance units: 368;
Number of dedicated office staff: 2;
Number of rental assistance units per staff: 184.
Source: GAO.
[End of table]
In written responses to survey questions, certain respondents cited
issues related to RHS guidance in the conduct of their rental
assistance responsibilities. For example, one survey respondent stated
that RHS guidance needed to be simplified and issued in a timely
manner. Another survey respondent stated that RHS guidance is sometimes
unclear. This respondent added that administrative notices helped to
some degree but added that the office was receiving more guidance from
unnumbered letters, which do not carry the same force as RD
Instructions or administrative notices.
Despite these comments, 80 percent of respondents considered national
administrative notices helpful or very helpful at clarifying policies
and procedures established by the national office. However,
approximately 50 percent of respondents were unable to say how many
notices the national office had issued between January 2003 and January
2004.
Triennial Supervisory Reviews Are RHS's Primary Monitoring Tool for the
Rental Assistance Program:
The triennial supervisory review is the chief activity RHS local
offices use to verify tenants' income, assets, and expenses--that is,
the information on which the tenant certifications and project
worksheets, and ultimately rental assistance payments, are based. RHS
staff look for supporting documentation that confirms tenants'
eligibility and income during tenant household file reviews and examine
the property owner or manager's waiting list, rental rates, and budget.
While property owners are required to collect supporting documentation
for tenants' claims of income, assets, and expenses --a process
referred to as third party income verification--RHS staff do not see
the original documentation tenants provide at any time other than
during triennial supervisory reviews.[Footnote 13] Local office staff
in all five states selected for site visits told us that triennial
supervisory reviews were the mechanism they used to monitor the
accuracy and completeness of tenant certification data. Further
information collected from the local office staff emphasized the value
of triennial supervisory reviews. For example, four out of five local
offices we visited recalled finding errors or questionable tenant
documentation during triennial supervisory reviews.
RHS uses the triennial supervisory review and other mechanisms to
detect unauthorized rental assistance payments but faces challenges
recapturing the unauthorized payments. Tenant household file reviews
can help detect erroneous claims that lead to unauthorized payments.
For example, during a triennial supervisory review, RHS staff in one
state found that a property owner had allowed a tenant to overstate
medical expenses, which could lower the tenant's net income and thus
increase the payment RHS makes on the rental unit. Employers may also
file erroneous third-party income verification forms. According to a
property owner we visited, such errors can occur when employers falsify
income information in order to maximize rental assistance payments for
their employees. RHS can detect such errors through wage matching, the
process of comparing statements of income by tenants or employers to
data collected by state wage information collection agencies.
According to RHS officials, recapturing unauthorized rental assistance
payments once they have been made is difficult. Though RHS can report
false statements of income to state agencies, these agencies seldom
have recourse against tenants or employers. When surveyed, 49 percent
of RHS staff stated that they collect unauthorized rental assistance
payments from property owners. Owners can, in turn, attempt to collect
the unauthorized payments from tenants through a repayment agreement.
Twenty-nine percent of the RHS offices that indicated that their office
is able to reclaim unauthorized rental assistance reported that they
had attempted to initiate payment agreements with tenants. However, in
written responses to survey questions, one respondent noted that the
office is not able to recapture unauthorized rental assistance in over
95 percent of the cases. Another survey respondent stated that the
office is successful in recapturing unauthorized rental assistance in
about 30 to 50 percent of the cases. Additionally, survey respondents
stated that tenants typically vacated the units before the debt was
repaid.
Initiatives to Increase Monitoring of the Rental Assistance Program
Could Be Hindered by the Lack of Key Managers in the National Office:
Initiatives are under way at the national office to strengthen
monitoring of the rental assistance distribution process at all levels.
In response to the Improper Payments Information Act, the national
office is conducting a review of properties to determine a nationwide
erroneous rental assistance payments rate.[Footnote 14] The national
office is also attempting to gain access to the National Directory of
New Hires, which is administered by the Department of Health and Human
Services. This database would give RHS state and local offices access
to national wage-matching data that could be used to further verify
tenants' income.
A number of key positions in the Rural Development mission area,
particularly in the Multifamily Housing Division, have been unfilled
since approximately March 2003, and existing staff were filling two or
more administrative roles (fig. 5).
Figure 5: Key Management Positions in the Rural Housing Service, as of
July 2004:
[See PDF for image]
[End of figure]
For example, as of July 2004 the Deputy Administrator of Multifamily
Housing and Assistant Deputy Administrator of Multifamily Housing
positions had been unfilled since March 2003 and August 2003,
respectively.[Footnote 15] Additionally, at times the Deputy
Administrator for Community Programs filled the roles of both acting
Rural Housing Service Administrator and acting Deputy Administrator of
Multifamily Housing.[Footnote 16] Finally, the Director of the
Portfolio Management Division, which administers the rental assistance
program, had also at one time filled the role of acting Assistant
Deputy Administrator for Multifamily Housing. The leadership gap could
have a negative effect on program staff's ability to develop and
administer new policies in a timely fashion. For example, the national
office planned to release administrative notices clarifying procedures
on, among other things, income verification in July 2004. However,
because of staffing constraints due to the consolidation of RHS
regulations, the issue date was extended.
RHS's Internal Controls Do Not Provide Adequate Oversight of Rental
Assistance Funds:
RHS's internal controls do not provide reasonable assurance that rental
assistance funds are used efficiently or that tenants' incomes and
assets are adequately verified. First, RHS lacks sufficient guidance to
oversee the transfer process, creating difficulty in moving unused
rental assistance throughout the multifamily housing portfolio. Second,
the triennial supervisory review does not provide reasonable assurance
that errors in tenants' income statements and thus in rental assistance
payments will be prevented or detected in a timely manner. The guidance
is inconsistently interpreted and the reviews are conducted
infrequently using methods, specifically the selection of an
appropriate sample size to review, which may be insufficient. Alternate
methods of verification, such as internal MFIS database checks and wage
matching, could help improve RHS's existing internal controls if
properly designed and implemented.
Insufficient Guidance on Transfers Limits Ability to Move Unused Rental
Assistance to Properties with the Neediest Tenants:
The majority of survey respondents (52 percent) very frequently or
fairly frequently encountered high vacancy rates as a cause of unused
rental assistance. Additionally, when asked to identify the three
greatest challenges to their offices, survey respondents most
frequently listed monitoring and filling unit vacancies as the greatest
challenge facing RHS state and local offices. The current lack of clear
guidance on transferring unused rental assistance may prevent RHS
officials from using transfers as a tool to fill vacancies within and
outside of a state.
We found that RHS's guidance on transfers was not sufficient to meet
GAO's Standards for Internal Control in the Federal Government. GAO's
standards state that for an entity to run and control its operations,
it must have relevant, reliable, and timely communications relating to
internal as well as external events. For communications to be
effective, information must flow down, across, and up the organization.
RD Instructions state that transferred rental assistance must be
directed to properties with tenants or applicants that have the
greatest need, based on income level. However, RD Instructions are
silent on whether state and local offices should transfer unused rental
assistance to properties within their portfolios or redirect it to
properties outside their portfolios--either within or outside the
state--where the need is greater. As a result, the guidance is
interpreted inconsistently, potentially preventing RHS from
effectively transferring rental assistance.
During our site visits, an RHS official in one state said that her
office most often conducted transfers within the property owners'
portfolios, but officials in other states prioritized transfers to
benefit the most needy tenants throughout the state. An official noted
that RD Instructions did not explicitly prioritize such transfers.
Further, because RD Instructions do not state whether rental assistance
is to be transferred only within states or among states, three state
offices interpreted the RD Instructions as allowing the transfer of
unused rental assistance to other states with a greater need. However,
76 percent of survey respondents reported that their office did not
have, or they did not know if it had, formal procedures for conducting
state-to-state transfers.
In written responses to our survey questions, certain respondents noted
that RHS guidance on transferring unused rental assistance was
insufficient. For example, one survey respondent noted that states were
currently responsible for transferring unused rental assistance without
a great deal of guidance from the national office. Another respondent
noted that regulatory and instructional requirements for transferring
rental assistance were "not efficient." Yet another noted that RD
Instructions did not outline procedures for transferring unused rental
assistance among properties or states.
Officials in the national office told us that one of their functions
was to encourage the transfer of rental assistance both within and
among states. One official stated that RD Instructions did offer
guidance on where to transfer rental assistance but could not point to
specific details. The official also stated that the goal of the
transfer policy was to provide rental assistance to the tenant with the
greatest need. However, the current RD Instruction on transfers does
not provide the necessary control to ensure that this goal is met. In
addition, to determine where the greatest need exists, RHS national
office would have to consistently assess need within portfolios, within
states, and among states. RHS officials acknowledged that they were
reviewing the guidance on transfers and stated that RHS planned to
issue an administrative notice to clarify procedures for transferring
unused rental assistance.
The issue of unclear guidance on transfers is complicated by the fact
that RD Instructions give property owners certain protections that
limit transfers of unused rental assistance. While RHS can transfer
unused rental assistance on covered units after 12 months, at least one
unit must remain covered at the property. RHS must also notify property
owners 30 days in advance of its intent to make a transfer and ensure
that the property owners know their appeal rights. According to RHS
officials in the states we visited, property owners most often
instigated transfers when they occurred, typically to other properties
they owned. An official in one state estimated that property owners
initiated 95 percent of transfers in that area.
We found that RHS officials in one state hesitated to recommend
transferring unused rental assistance outside of the property owner's
portfolio because of the appeals process. The State Director of Rural
Development in that state said that it could take at least 18 months to
transfer unused rental assistance to another property if the property
owner appealed, as the appeals process could take up to 6 months.
Additionally, one survey respondent would have liked to have the
authority to transfer unused rental assistance without giving the
property owner appeal rights. RHS national office officials noted that,
since 2001, there had been only two requests for review of a property
owner's appeal. In both cases, RHS's National Appeals Director decided
against the property owner, and allowed RHS to transfer the unused
rental assistance to properties outside of the property owner's
portfolios.
Triennial Supervisory Reviews Are Not Adequate as the Primary
Monitoring Tool for the Rental Assistance Program:
Approximately 56 percent of survey respondents reported that they were
able to verify the accuracy of information provided during the tenant
certification process. Of those, 56 percent said they did so during the
triennial supervisory review. Likewise, all of the local offices we
visited during our site visits stated that information provided for
tenant certifications was verified during or in preparation for
triennial supervisory reviews. And approximately 83 percent of survey
respondents reported that triennial supervisory reviews provided them
with the information necessary to effectively monitor properties in
their portfolios to a great or very great extent.
However, we found that the triennial supervisory review was not a
sufficient means of detecting problems such as misreported income,
verification errors, and unauthorized rental assistance payments. GAO's
standards state that internal control should generally be designed to
assure that ongoing monitoring occurs in the course of normal
operations, is performed continually, and is ingrained in the agency's
operations. RHS's triennial supervisory reviews did not meet this
standard because they are conducted infrequently using a sample size
that may be too small to provide reasonable assurance that all tenant
certifications are reviewed at least once or more than once every
several years. RD Instructions require a sample of at least six tenant
household files from a property with more than six units, and all
tenant household files for properties with six units or fewer. With a
sample size this small, however, tenants could move from a unit they
had rented before the local office has a chance to sample their
household file during a supervisory review.
Local offices in the states we visited said that they interpreted RD
Instructions as requiring a 20-or 25-percent sample of tenant household
files. However, we found that staffing and time limitations did not
allow staff to conduct the reviews this way.[Footnote 17] For example,
an official in one local office stated that her office reviewed six
tenant household files for every property, even if 20 percent of the
property comprised a greater number of units. Furthermore, about 20
percent of survey respondents reported not having sufficient staff to
conduct reviews, and about 27 percent reported not having sufficient
time to conduct the reviews according to the RD Instructions. A local
office official in another state we visited said that staff reviewed
either six tenant household files or 10 percent of the total-whichever
was greater. Even if the local offices consistently used a 20 percent
or 25 percent sample of tenant household files, however, as figure 6
shows a rental assistance unit could go without review for 12 to 15
years.[Footnote 18]
Figure 6: Frequency of Supervisory Reviews of Tenant Household Files:
[See PDF for image]
Note: This figure assumes a 20 percent or 25 percent sampling of tenant
household files. This figure assumes that RHS local office staff sample
tenant household files without replacement. That is, the portion of
files selected on an initial supervisory review will not be selected
for subsequent supervisory reviews.
[End of figure]
RHS's national office does not have a basis for determining whether
sampling a minimum of six tenant household files per property is
sufficient to provide reasonable assurance that errors in tenant and
payment information are adequately detected. In order to design a cost
efficient sampling strategy that can provide reasonable assurance with
respect to tenant income and rental assistance payments, RHS needs
information on the overall error rates. One way to determine an overall
error rate is to conduct a national statistically valid random sample
of tenant household files. Information gathered from this sample would
provide RHS with a better idea of the level of erroneous income tenants
were reporting and enable RHS to estimate the level of improper rental
assistance payments that are being made throughout the program. In
addition, it would provide RHS officials with valuable information on
how to structure future supervisory reviews in a more efficient and
effective manner.
In a June 2003 report assessing controls over the tenant certification
process and accuracy of rental subsidies conducted by the USDA Office
of Inspector General, the audit team found that in Florida, tenant
certifications for an estimated 20.8 percent of the 14,705 units
contained errors that resulted in households receiving an estimated
$4.7 million in improper rental subsidies.[Footnote 19] This finding
emphasizes the importance of being able to detect errors in tenant
information in a timely manner.
In March 2004, RHS began a review of properties to determine an overall
error rate for rental assistance payments to comply with the Improper
Payments Information Act. RHS officials selected a sample of 539
assisted units in 321 RHS properties, and the national office expects
to report their findings by the end of September 2004.[Footnote 20]
Until RHS determines an overall error rate using a statistically valid
sample, RHS will not be able to determine an appropriate sampling
strategy for use with supervisory reviews to estimate error rates and
compliance with internal controls.
GAO's internal control standards also state that agencies should
evaluate their monitoring activities, and the evaluations should depend
on the assessment of risks and the effectiveness of the monitoring
procedures. RHS officials in the states we visited said that they found
errors or questionable tenant documentation during triennial
supervisory reviews. For example, RHS officials in one state said that
they would follow up with the property owner if they found errors in
the data that are being verified. The official added that property
owners might be given a 15-or 30-day period to correct any
deficiencies. An RHS official in another state said that RHS staff
sometimes found questionable supporting documents during triennial
supervisory reviews. The official explained that the staff note the
problem in the triennial supervisory review report and request that the
property owner obtain the correct documentation. These examples suggest
that, if properly designed and implemented, the triennial supervisory
review can be valuable in detecting tenant and payment errors.
Alternate Controls Used by RHS to Verify Tenant and Payment Information
Have Had Limited Effectiveness:
RHS staff use alternate controls, such as MFIS database checks and wage
matching, to verify tenant and payment information. According to RHS
officials, the MFIS system has internal checks that help RHS officials
avoid and catch errors. When tenant certifications are submitted
electronically through the Industry Interface, MFIS automatically
rejects those that are problematic. For example, a tenant certification
would be rejected if it showed that the tenant might already reside at
another property--that is, if the tenant's Social Security number
already existed within the system.
Also, MFIS allows RHS officials to reject tenant certifications for
certain reasons and thus flag them for review. For example, as we have
seen tenants must recertify their eligibility for rental assistance if
their income increases by $40 a month ($480 a year) or decreases by $20
a month ($240 a year). MFIS allows each office to compare incoming
tenant certifications to the prior batch of tenant certifications. RHS
staff in each office can then establish a threshold in MFIS to reject
tenant certifications that show a change in income of more than an
established amount, for example, 20 percent, and hold them for further
review.
Although RD Instructions determine income changes in terms of dollar
amounts, the MFIS database check has been implemented to use
percentages to set the threshold for rejecting tenant certifications.
However, setting the threshold in terms of dollar amounts would be
consistent with the RD Instruction that describes how to determine
changes in income. For example, if a tenant reported zero income on an
initial certification, any subsequent increase in income would be more
than 20 percent, thereby triggering a rejection, although the dollar
increase could be less than $40. Likewise, if a tenant's reported
income increased from $30 to $40 per month, for example, the MFIS
system would also reject this certification because the percentage
increase is greater than 20 percent. However, a $10 increase in income
is not enough to warrant recertification. But if a tenant's reported
income increased from $300 to $345 per month, MFIS would accept this
certification because the percentage increase in income is less than 20
percent, although the dollar increase is more than $40.
An RHS official in the national office stated that the MFIS database
check could be designed to use dollar amounts instead of percentages to
establish the threshold. In either case, however, the national office
does not currently have an established percentage benchmark in MFIS for
all offices to use, and RHS local offices are not setting the
thresholds consistently.[Footnote 21] In one local office we visited,
RHS staff established their threshold to reject tenant certifications
that change by 20 percent. However, in another state we visited, local
office staff set MFIS to reject changes in income of 25 percent or
more. Setting the threshold higher than an established benchmark would
make this control less effective at detecting changes in income.
Setting a threshold lower than an established benchmark would make
this control more effective but would result in a higher number of
pending certifications that would likely require more staff resources.
Although the RHS national office has established the MFIS database
check as a control, we identified and were told of errors on tenant
certifications. For example, in one state we identified a tenant
certification that listed two dependents as living in a unit receiving
rental assistance. However, the dependents were not listed in MFIS. RHS
local office officials stated that, in such a situation, the two
dependents would not change the amount of rent owed by the tenant or
the amount of rental assistance due to the property owner. But because
rental assistance payments are based on household size, among other
things, the presence or absence of dependents could influence rental
assistance payments. For example, if a tenant got married an additional
person would be living in the unit and would possibly have an
additional source of income. If a tenant gave birth, the tenant would
receive an income deduction for the newborn, decreasing the amount of
income used in determining the amount of the rental assistance payment.
Further, RHS officials in four of the states we visited stated that,
following RHS guidance, they verified the accuracy of rental assistance
payments by comparing property owners' project worksheets with project
worksheets generated using MFIS. According to an RHS official, any
errors on the property owners' project worksheets should be detected
during the comparison with the MFIS-generated project worksheet. But
since the MFIS project worksheet is generated with the same information
from tenant certifications that property owners used to generate their
project worksheets, RHS is essentially comparing duplicate data from
the same source (see fig. 7).
Figure 7: Process Used to Verify the Accuracy of Rental Assistance
Payments:
[See PDF for image]
[End of figure]
According to GAO Standards for Internal Control in the Federal
Government, such a check is not sufficient. Internal control calls for
comparisons and assessments using different sets of data so that
relationships can be analyzed and appropriate actions taken. In order
for RHS to have a meaningful reconciliation, MFIS data would need to be
compared with a different data source to identify differences in
reported tenant and payment information.
An RHS official in the national office believed that this internal
control standard is not applicable to this situation. The official
stated that discrepancies between the MFIS-generated project worksheet
and the property owner's project worksheet often arise because the
property owner may not send complete information. For example, if a
property owner did not submit a form indicating that a tenant had
vacated a unit, or if the owner did not perform a calculation
correctly, a discrepancy would occur that RHS would look into. We agree
that this system can catch errors of inconsistency. But a property
owner could consistently be submitting complete, but inaccurate,
information reported by the tenant. In such cases, RHS would not be
able to detect errors or improper rental assistance payments by
comparing the two project worksheets. RHS would need to consult another
source of information, such as data on earned income that could be used
for wage matching, to verify that information reported by the tenant
and submitted by the property owner is accurate. Wage matching would
allow staff to verify tenant's reported income using wage information
collected by the state.
RHS was told by the USDA Office of the Inspector General over 5 years
ago to continue their efforts to ensure that RHS state and local
offices utilize wage matching to detect misreported tenant
income.[Footnote 22] In a February 1999 report, the Inspector General's
audit team evaluated methods RHS and property owners used to ensure
that tenants' incomes were properly reported on tenant certifications.
The audit team found that 47 percent of tenant certifications in six
states (29,238 out of 62,815) were incorrect due to inaccurately
reported income, income changes, and property managers that did not
properly verify income reported by tenants. Further, the audit team
found that about 93 percent of the income errors involved tenants that
had reported earned income. The Inspector General recommended that RHS
be more aggressive in expanding its wage-matching efforts.
Some RHS state offices are granted access to wage-matching data through
agreements between the offices and wage collection agencies, such as
state labor departments. These agreements follow state laws. Our survey
results showed that 64 percent of RHS state offices (28 of 44 RHS state
offices that responded) had access to state employment information to
conduct wage matching (see fig. 8.)
Figure 8: States with Wage-Matching Agreements:
[See PDF for image]
Note: In certain instances, RHS has a single state office for selected
groupings of states. To depict wage-matching status in these selected
state groupings, this figure only shades the state where the state
office is located. See appendix I for more details on RHS's state
groupings.
[End of figure]
However, some RHS officials believe that state-based wage matching has
limitations. For example, officials in one state we visited noted that
their office did not place much emphasis on wage matching because their
area bordered other states and many individuals worked across state
lines. Without access to wage-matching data in the bordering states,
RHS staff were not able to adequately certify reported income. Further,
officials noted that state wage data were often outdated and did not
capture all sources of income.
RHS is attempting to acquire access to the Department of Health and
Human Services' National Directory of New Hires by contacting the U. S.
Department of Housing and Urban Development (HUD) to discuss the
language originally proposed by HUD for the authority to use the
directory.[Footnote 23] The National Directory of New Hires, which
includes centralized sources of state wage, unemployment insurance, and
new hires data for all 50 states, would provide nationwide data for
wage matching. Access to this directory would likely help solve the
problem of verifying income for tenants who work across state lines.
Also, wage data from the National Directory of New Hires is more recent
than state data and captures all earned income.
Conclusions:
RHS's internal controls do not provide reasonable assurance that rental
assistance resources are used effectively. RHS national office transfer
guidance is insufficient and RHS local offices have inconsistently
interpreted what is available. As a result, rental assistance funds may
not be directed to the most needy tenants or may go unused.
Additionally, the infrequency of the triennial supervisory reviews
using a sampling methodology that may be insufficient cannot reasonably
ensure that tenants' income and assets, and ultimately rental
assistance payments, are adequately verified. RHS does not have a basis
for determining what constitutes a sufficient sample size for the
triennial supervisory reviews without establishing an overall error
rate for rental assistance payments. These shortcomings increase the
risk that RHS will provide rental assistance to tenants that may not be
eligible.
RHS currently uses alternate methods of income verification, including
MFIS database checks that, if properly designed and implemented, could
provide reasonable assurance that errors in tenant and payment
information are detected in a timely manner. However, the effectiveness
of these alternate methods is limited because of their faulty design
and implementation. RHS officials stated that access to the National
Directory of New Hires would help with income verification and has made
efforts to gain access to this information.
Recommendations for Executive Action:
To ensure that rental assistance funds are effectively distributed to
properties that have tenants with the greatest need, GAO recommends
that the Secretary of Agriculture require program officials to (1)
establish centralized guidance on transferring unused rental
assistance, (2) improve sampling methods to ensure that a sufficient
number of tenant household files are selected for supervisory reviews
and (3) improve verification of tenant information including more
effective use of alternate methods of income verification.
Matter for Congressional Consideration:
Congress may wish to consider adding RHS to Section 453 (j)(7) of the
Social Security Act, "Information comparisons for housing assistance
programs."[Footnote 24] This action would grant RHS access to the
Department of Health and Human Services' National Directory of New
Hires for wage-matching purposes. If such access were granted, RHS and
the Department of Health and Human Services would have to develop
specific procedures to facilitate it.
Agency Comments and Our Evaluation:
We provided USDA with a draft of this report for review and comment.
The Acting Undersecretary for Rural Development provided written
comments that are presented in appendix IV. The letter included a
summary of activities that were planned or had recently begun at RHS
that the Acting Undersecretary said were designed to improve the
oversight, monitoring, and guidance of the multifamily housing program.
In response to our recommendation on establishing centralized guidance
on transferring unused rental assistance, the Acting Undersecretary for
Rural Development agreed to establish this guidance in an
administrative notice. Concerning our recommendation that RHS improve
sampling methods to ensure that a sufficient number of tenant files are
selected for supervisory reviews, the Acting Undersecretary responded
that USDA would instead revamp the supervisory review process to
improve its effectiveness and consistency. We agree that the
supervisory review process should be revised to improve its
effectiveness and consistency and are encouraged that USDA is taking
steps to accomplish this. However, to make this process an effective
control to ensure that the rental assistance payments are correct, or
that incorrect payments are discovered in the normal course of
business, USDA must also improve its sampling methodology as we
described in the report. In particular, RHS must determine an overall
error rate using a statistically valid sample to determine how many
tenant household files are sufficient to detect errors. Unless this
methodology is improved in conjunction with the supervisory review
process, USDA will continue to lack any assurance as to the propriety
of the rental assistance payments that are not reviewed. The Acting
Undersecretary agreed with our recommendation that RHS improve its
methods for verifying tenant information, including using alternate
income verification methods. He stated that USDA would institute
broader use of alternate income verification methods, such as improved
access to wage matching and new hires data, but noted that USDA needed
to be able to share this data with third parties, particularly the
property owners. As noted in this report, if RHS were granted access to
data from the National Directory of New Hires, RHS and the Department
of Health and Human Services would have to develop specific procedures
to facilitate such access.
The Acting Undersecretary also noted that GAO said in the report that
streamlining and automating borrower's requests for rental assistance
payments could remove an important layer of agency review. However, GAO
did not take a position on this issue. We merely summarized concerns
expressed by RHS local office staff we visited, attributing the
comments appropriately. We also noted that national office staff
overseeing the changes had told us that streamlining the payment
process would not eliminate this review and that not all states were
currently using the streamlined process. Finally, we incorporated
updated information USDA provided on RHS staffing.
As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies of this report
to interested Members of Congress and congressional committees. We will
also send copies to the Secretary of the Department of Agriculture and
the Director of the Office of Management and Budget and make copies
available to others upon request. In addition, this report will be
available at no charge on the GAO Web site at
[Hyperlink, http://www.gao.gov]. Our survey of RHS state and local
offices administering Section 521 rental assistance and a more complete
tabulation of the survey results will also be available on the GAO Web
site at [Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-978SP].
Please contact me at (202) 512-4325, or Andy Finkel at (202) 512-6765,
if you or your staff have any questions concerning this report. Key
contributors to this report are listed in appendix V.
Sincerely yours,
Signed by:
William B. Shear:
Director, Financial Markets and Community Investment:
[End of section]
Appendixes:
Appendix I: Scope and Methodology:
To determine how RHS distributes rental assistance funds and monitors
the rental assistance program, and to identify the internal controls
RHS has established to ensure that rental assistance funds are
administered and used effectively, we collected written and testimonial
information from agency officials in the national office and in the
Office of the Deputy Chief Financial Officer in St. Louis, Missouri on
the rental assistance distribution process and the guidance governing
the distribution process. We consulted GAO's Standards for Internal
Control in the Federal Government [Hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-00-21.3.1] to review control
activities that apply to RHS's distribution of rental assistance funds.
We used these standards to assess whether RHS's current internal
controls were sufficient to effectively monitor the rental assistance
program.
We also surveyed RHS state and local offices that were identified as
having rental assistance responsibilities by their respective State
Directors or the appropriate designee. We identified 248 state and
local offices with rental assistance responsibilities.[Footnote 25]
These consisted of 46 RHS state offices and 202 local offices in
existence as of December 2003.[Footnote 26] To ensure security and data
integrity, we provided each of the 248 offices with a web address, a
unique identification number, and a password to allow the office access
to one questionnaire.
The questionnaire covered topics related to the rental assistance
program. Specifically, the questions covered general office and staff
information, renewal contracts, unused rental assistance, transfers,
tenant certifications, project worksheets, rent setting, reserve
accounts, and technology and resources. To prepare for the survey, we
conducted interviews in three state offices: the combined state office
of Maryland and Delaware, and the Texas and Illinois state offices, and
interviewed RHS local offices in Texas and Illinois. Of these, Maryland
and Delaware and Texas had centralized their processing of rental
assistance payments. We also pretested the questionnaire with state and
local offices in Pennsylvania and Wisconsin to determine whether
respondents would understand questions the way we intended. Since the
questionnaire was administered via the Internet, we conducted a
usability pretest with yet another RHS local office in Virginia to
observe respondents answering the questionnaire as it would appear when
activated.
We took the following steps to increase the response rate for all
sectors of the population. We sent one reminder notice via e-mail and
conducted follow-up telephone calls to those offices that did not
respond to our survey by the initial deadline. Collection of survey
data ended on May 3, 2004. We received responses from 230 offices,
providing an overall response rate of 92.7 percent. Specifically, 44
state offices and 186 local offices responded, resulting in response
rates of 95.7 percent and 92.1 percent, respectively. We did not
independently verify the information obtained through the survey.
The practical difficulties of conducting any survey may introduce
certain types of errors, commonly referred to as nonsampling errors.
For example, differences in how a particular question is interpreted,
the sources of information available to respondents, or the types of
people who do not respond can introduce unwanted variability into the
survey results. Steps such as pretesting and follow-up contacts to
increase response rates serve to minimize nonresponse error. In
addition, steps such as performing statistical analyses to identify
inconsistencies and having a second independent reviewer for the data
analysis can further minimize such error.
Data from the Web survey were entered electronically by participants
and imported into an electronic data file. Close-ended questionnaire
items were analyzed using statistical software. A coding scheme was
developed, and open-ended questionnaire items were content analyzed by
two trained coders, who revised their codes until 100 percent agreement
was reached. The results of the content analysis apply only to those
survey participants who provided responses. We only content analyzed
open-ended responses that were discussed in this report. We conducted
our survey work from April 2003 through July 2004 in accordance with
generally accepted government auditing standards.
To obtain more in-depth information, we conducted site visits to RHS
state and local offices in five states: Utah; South Carolina; New York;
Mississippi; and the Connecticut, Massachusetts, and Rhode Island state
grouping. We designed a site visit interview guide that enabled the
team to follow the distribution process beginning with the property
owner or manager and proceeding to the local office, and finally, to
the state office. Using the interview guide, we observed and discussed
with RHS staff the tenant certification, project worksheet, and
transfer processes, among others.
To determine the states where we would conduct the site visits, we
conducted a stratified random sample. Two centralized and three
decentralized states were randomly selected from a list of state
offices, after eliminating the offices we visited to prepare and
pretest the survey.[Footnote 27] After the state offices were selected,
we randomly selected one local office from the local offices available
in that state. We judgmentally selected the property owners based on
their distance from the local office and their most recent rental
assistance transfer. However, the experiences of these states are not
necessarily representative of the experiences of any other state.
During each of the site visits, we interviewed a property owner or
manager, RHS officials in a local office, and RHS officials in the
state office. Using the interview guide, we also obtained key documents
related to the three processes that were being discussed. Specifically,
the interview guide required the team to obtain from the property owner
or manager the most recent, completed project worksheet; tenant
certifications associated with certain rental assistance units; tenant
applications corresponding to the tenant certifications; a current
waiting list; and documentation of a recent transfer of rental
assistance. We tracked these documents through the local offices and
the state offices to observe internal controls at each level. After all
site visits were completed, we interviewed officials from RHS's Office
of the Deputy Chief Financial Officer to obtain information on their
role in the rental assistance distribution process. Last, we
interviewed the RHS national office to determine its role in monitoring
the rental assistance distribution process and to assess the internal
controls they have established to oversee rental assistance funds.
We also consulted GAO's Standards for Internal Control in the Federal
Government to review control activities that apply to RHS's
distribution and monitoring of rental assistance funds. We reviewed
site visit documents to provide examples of RHS's internal controls. We
performed our site visit work from March through May 2004 in accordance
with generally accepted government auditing standards.
[End of section]
Appendix II: State Office Survey Responses for Rural Rental Housing
(RRH) Properties:
State: Alaska;
RRH properties: 42;
RRH units: 897;
RRH units occupied by zero income tenants, as of 1/1/04: 32;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: 44;
RRH units receiving rental assistance: 784.
State: Alabama;
RRH properties: 495;
RRH units: 16,191;
RRH units occupied by zero income tenants, as of 1/1/04: 954;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: 3,206;
RRH units receiving rental assistance: 8,033.
State: Arkansas;
RRH properties: 361;
RRH units: 9,908;
RRH units occupied by zero income tenants, as of 1/1/04: 174;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: 1,076;
RRH units receiving rental assistance: 6,092.
State: Arizona;
RRH properties: 118;
RRH units: 3,775;
RRH units occupied by zero income tenants, as of 1/1/04: 140;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: 217;
RRH units receiving rental assistance: 3,080.
State: Delaware;
RRH properties: 221;
RRH units: 6,975;
RRH units occupied by zero income tenants, as of 1/1/04: 581;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: 320;
RRH units receiving rental assistance: 4,210.
State: Georgia;
RRH properties: 478;
RRH units: 15,427;
RRH units occupied by zero income tenants, as of 1/1/04: 233;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: 4,134;
RRH units receiving rental assistance: 7,972.
State: Hawaii;
RRH properties: 22;
RRH units: 903;
RRH units occupied by zero income tenants, as of 1/1/04: 3;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: 3;
RRH units receiving rental assistance: 680.
State: Iowa;
RRH properties: 679;
RRH units: 11,717;
RRH units occupied by zero income tenants, as of 1/1/04: 242;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: 170;
RRH units receiving rental assistance: 8,884.
State: Kansas;
RRH properties: 409;
RRH units: 6,651;
RRH units occupied by zero income tenants, as of 1/1/04: 111;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: 613;
RRH units receiving rental assistance: 3,858.
State: Kentucky;
RRH properties: 456;
RRH units: 12,284;
RRH units occupied by zero income tenants, as of 1/1/04: 291;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: 525;
RRH units receiving rental assistance: 6,437.
State: Louisiana;
RRH properties: 415;
RRH units: 12,637;
RRH units occupied by zero income tenants, as of 1/1/04: 347;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: 2,360;
RRH units receiving rental assistance: 7,537.
State: Massachusetts;
RRH properties: 143;
RRH units: 4,949;
RRH units occupied by zero income tenants, as of 1/1/04: 491;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: 349;
RRH units receiving rental assistance: 3,487.
State: Michigan;
RRH properties: 723;
RRH units: 18,653;
RRH units occupied by zero income tenants, as of 1/1/04: NR;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: NR;
RRH units receiving rental assistance: 8,905.
State: Minnesota;
RRH properties: 673;
RRH units: 12,064;
RRH units occupied by zero income tenants, as of 1/1/04: DC;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: DC;
RRH units receiving rental assistance: 6,389.
State: Missouri;
RRH properties: 896;
RRH units: 19,868;
RRH units occupied by zero income tenants, as of 1/1/04: DK;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: 1,964;
RRH units receiving rental assistance: 8,493.
State: Mississippi;
RRH properties: 564;
RRH units: 16,416;
RRH units occupied by zero income tenants, as of 1/1/04: 669;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: 1,252;
RRH units receiving rental assistance: 8,825.
State: Montana;
RRH properties: 168;
RRH units: 2,634;
RRH units occupied by zero income tenants, as of 1/1/04: 87;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: 184;
RRH units receiving rental assistance: 1,939.
State: North Dakota;
RRH properties: 253;
RRH units: 3,365;
RRH units occupied by zero income tenants, as of 1/1/04: 187;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: 102;
RRH units receiving rental assistance: 2,147.
State: Nebraska;
RRH properties: 280;
RRH units: 3,908;
RRH units occupied by zero income tenants, as of 1/1/04: 197;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: 141;
RRH units receiving rental assistance: 2,566.
State: New Jersey;
RRH properties: 83;
RRH units: 3,347;
RRH units occupied by zero income tenants, as of 1/1/04: 78;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: 445;
RRH units receiving rental assistance: 2,009.
State: New Mexico;
RRH properties: 116;
RRH units: 4,005;
RRH units occupied by zero income tenants, as of 1/1/04: 347;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: 211;
RRH units receiving rental assistance: 3,072.
State: Nevada;
RRH properties: 80;
RRH units: 1,800;
RRH units occupied by zero income tenants, as of 1/1/04: DK;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: DK;
RRH units receiving rental assistance: 1,100.
State: New York;
RRH properties: 471;
RRH units: 13,210;
RRH units occupied by zero income tenants, as of 1/1/04: 148;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: 1,101;
RRH units receiving rental assistance: 5,194.
State: Ohio;
RRH properties: 402;
RRH units: 14,912;
RRH units occupied by zero income tenants, as of 1/1/04: 553;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: 1,429;
RRH units receiving rental assistance: 8,905.
State: Oklahoma;
RRH properties: 302;
RRH units: 8,111;
RRH units occupied by zero income tenants, as of 1/1/04: 224;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: 140;
RRH units receiving rental assistance: 5,130.
State: Pennsylvania;
RRH properties: 330;
RRH units: 10,640;
RRH units occupied by zero income tenants, as of 1/1/04: DC;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: DC;
RRH units receiving rental assistance: 6,840.
State: South Carolina;
RRH properties: 352;
RRH units: 12,309;
RRH units occupied by zero income tenants, as of 1/1/04: 430;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: 2,847;
RRH units receiving rental assistance: 5,880.
State: South Dakota;
RRH properties: 503;
RRH units: 6,844;
RRH units occupied by zero income tenants, as of 1/1/04: DK;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: 70;
RRH units receiving rental assistance: 4,570.
State: Tennessee;
RRH properties: 386;
RRH units: 13,038;
RRH units occupied by zero income tenants, as of 1/1/04: DK;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: DK;
RRH units receiving rental assistance: 6,539.
State: Texas;
RRH properties: 804;
RRH units: 26,466;
RRH units occupied by zero income tenants, as of 1/1/04: 707;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: 4,046;
RRH units receiving rental assistance: 14,397.
State: Utah;
RRH properties: 93;
RRH units: 2,095;
RRH units occupied by zero income tenants, as of 1/1/04: DK;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: DK;
RRH units receiving rental assistance: 1,595.
State: Virginia;
RRH properties: 272;
RRH units: 10,498;
RRH units occupied by zero income tenants, as of 1/1/04: DC;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: DC;
RRH units receiving rental assistance: 6,461.
State: Washington;
RRH properties: 298;
RRH units: 8,989;
RRH units occupied by zero income tenants, as of 1/1/04: 97;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: 909;
RRH units receiving rental assistance: 6,205.
State: West Virginia;
RRH properties: 255;
RRH units: 7,221;
RRH units occupied by zero income tenants, as of 1/1/04: 281;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: 977;
RRH units receiving rental assistance: 4,240.
State: Wyoming;
RRH properties: 62;
RRH units: 1,655;
RRH units occupied by zero income tenants, as of 1/1/04: 118;
RRH units occupied by rent-overburdened tenants, as of 1/1/04: 252;
RRH units receiving rental assistance: 1,188.
Source: GAO.
Notes:
DC = Don't collect:
DK = Don't know:
NR = No response:
We surveyed only state offices with rental assistance responsibilities.
Also, in certain instances, RHS has a single state office for selected
groupings of states. For these selected groupings, this chart only
displays the state name where the state office is located. Thus, the
total number of state offices is less than 50. See appendix I for more
details on RHS's selected state groupings.
This chart displays survey responses for RHS state office respondents
only, if they indicated that they had Rural Rental Housing (Section
515) properties in its portfolio and if they provided data other than
Don't Collect, Don't Know, or No Response for at least one of the above
questions.
[End of table]
[End of section]
Appendix III: State Office Survey Responses for Off Farm Labor Housing
(FLH) Properties:
State: Hawaii;
Off FLH properties: 1;
Off FLH units: 31;
Off FLH units occupied by zero income tenants, as of 1/1/04: 0;
Off FLH units occupied by rent-overburdened tenants, as of 1/1/04: 0;
Off FLH units receiving rental assistance: 10.
State: Massachusetts;
Off FLH properties: 2;
Off FLH units: 48;
Off FLH units occupied by zero income tenants, as of 1/1/04: 2;
Off FLH units occupied by rent-overburdened tenants, as of 1/1/04: 1;
Off FLH units receiving rental assistance: 46.
State: Michigan;
Off FLH properties: 2;
Off FLH units: 44;
Off FLH units occupied by zero income tenants, as of 1/1/04: 0;
Off FLH units occupied by rent-overburdened tenants, as of 1/1/04: 0;
Off FLH units receiving rental assistance: 43.
State: New Mexico;
Off FLH properties: 5;
Off FLH units: 111;
Off FLH units occupied by zero income tenants, as of 1/1/04: 19;
Off FLH units occupied by rent-overburdened tenants, as of 1/1/04: 5;
Off FLH units receiving rental assistance: 103.
State: Oklahoma;
Off FLH properties: 2;
Off FLH units: 42;
Off FLH units occupied by zero income tenants, as of 1/1/04: 0;
Off FLH units occupied by rent-overburdened tenants, as of 1/1/04: 0;
Off FLH units receiving rental assistance: 39.
State: Texas;
Off FLH properties: 20;
Off FLH units: 1,415;
Off FLH units occupied by zero income tenants, as of 1/1/04: 13;
Off FLH units occupied by rent-overburdened tenants, as of 1/1/04: 36;
Off FLH units receiving rental assistance: 1,000.
State: Virginia;
Off FLH properties: 2;
Off FLH units: 46;
Off FLH units occupied by zero income tenants, as of 1/1/04: DK;
Off FLH units occupied by rent-overburdened tenants, as of 1/1/04: DK;
Off FLH units receiving rental assistance: 34.
State: Washington;
Off FLH properties: 24;
Off FLH units: 753;
Off FLH units occupied by zero income tenants, as of 1/1/04: 9;
Off FLH units occupied by rent-overburdened tenants, as of 1/1/04: 21;
Off FLH units receiving rental assistance: 521.
Source: GAO.
Notes:
DK = Don't know:
We surveyed only state offices with rental assistance responsibilities.
Also, in certain instances, RHS has a single state office for selected
groupings of states. For these selected groupings, this chart only
displays the state name where the state office is located. Thus, the
total number of state offices is less than 50. See appendix I for more
details on RHS's selected state groupings.
This chart displays survey responses for RHS state office respondents
only, if they indicated that they had Off Farm Labor Housing (Section
514/516) properties in its portfolio and if they provided data other
than Don't Collect, Don't Know, or No Response for at least one of the
above questions.
[End of table]
[End of section]
Appendix IV: Comments from the U.S. Department of Agriculture:
DEPARTMENT OF AGRICULTURE:
OFFICE OF THE SECRETARY:
WASHINGTON, D.C. 20250:
AUG 31 2004:
William B. Shear:
Director, Financial Markets and Community Investment:
United States Government Accountability Office:
441 G Street, NW:
Room 2A10:
Washington, DC 20548:
Dear Mr. Shear:
Thank you for providing the United States Department of Agriculture
(USDA), Rural Development with your draft report on "RURAL HOUSING
SERVICE: Updated Guidance and Additional Monitoring Needed for Rental
Assistance Distribution Process, Audit No. GAO-04-937." I would like to
offer the following comments for your consideration, and ask that a
copy of this response be included in your final report.
USDA provides affordable multi-family housing to almost a half-million
residents in rural America. One of the most important tools available
is the Rental Assistance (RA) program, which enables eligible very low
and low-income residents to pay only 30 percent of their income towards
rent. USDA takes very seriously its stewardship of this program.
We welcome the review done by Congress and appreciate their efforts to
highlight those areas where we need to improve. As noted in your
report, many of these weaknesses were already known to us and were the
subject of planned improvements. We are pleased to present an overview
of activities we have designed to improve oversight, monitoring and
guidance of the multi-family housing program.
With respect to the recommendations put forth by the Government
Accountability Office (GAO), 1) we agree to establish centralized
guidance on transferring unused RA and to do so through issuance of an
Administrative Notice (AN); 2) GAO suggests that we change sampling
methods in selecting tenant files; however, we will instead revamp the
supervisory visit process to improve its effectiveness and consistency;
and 3) we agree to increase local office monitoring of tenant income
verifications and to institute broader use of alternate income
verification methods, such as wage matching and new hires data, where
available. It is important to stress that we must have the ability to
share this data with third parties, particularly with the borrower and
his management agent. Having the data without the ability to share it
will make no difference because actual verification of tenant incomes
is done by the borrower and not Agency staff.
Issues noted in the GAO report.
GAO stated in the report that the streamlining and automation of
receiving and reviewing borrowers' requests for subsidy may remove an
important layer of Agency review. The improvement of the current
process does not change any review by Agency staff, but automating this
process eliminates human error during data entry. This automation will
improve the effectiveness, efficiency, and customer service of every
local office in Rural Development.
Automation will also free up staff time to undertake independent
reviews of flagged discrepancies and reviews of problem borrowers or
problem management agents. The intent of this automation is not to
remove or eliminate a level of review but rather enable and empower
staff with the additional time to investigate anomalies and errors.
The GAO recommendation for centralized guidance on unused RA is very
timely. A review of unused rental assistance was started within the
Agency earlier this year, both as a part of the comprehensive property
assessment study and as a management tool to stretch available
resources. As a result of the review, State Offices stepped up efforts
to use languishing RA for rent overburdened tenants, rehabilitation
projects, and some states shared RA with other states. The overall
result of this effort was more efficient use of rental assistance and
better service to our tenants. Additionally, the National Office made
some efficiency changes in the new regulation 3560. However, we also
recognize the need for additional and targeted National Office guidance
on recapturing and prioritizing unused RA and we expect to issue such
guidance later this year.
GAO states in the report that oversight and effective program
management are at risk because key management positions have been
vacant. We are pleased to advise you that the Administrator's position
has been filled by Russell T. Davis and the Multi-Family Housing (MFH)
Deputy Administrator's position has been filled by Jack Gleason. The
Assistant Deputy Administrator position, still vacant, is not involved
in day-to-day operations and has no supervisory responsibility over the
two multi-family divisions of Processing and Portfolio Management. This
assistant position acts as an advisor and program advocate. We are also
very pleased to advise you that all program staff positions within the
two divisions are filled and we now have a full complement of program
staff, following seven retirements in the last year.
Activities Underway at Rural Housing Service (RHS) MFH.
In addition to the Unused RA AN, we have been working on a
comprehensive AN to address tenant income verifications. One of the
major findings from the most recent management control review done on
the rental assistance program (2004) was the inconsistency of property
managers in verifying tenant income and the lack of this discovery
during monitoring through supervisory visits.
One of the key authorities that the new regulation 3560 will provide is
the ability of the Agency to recapture unauthorized rental assistance
and to invoke civil money penalties. An improved tenant certification
form will alert tenants to the Agency's intent to pursue reimbursement
of such unauthorized assistance.
The Agency also intends to undertake an effort to educate the tenants
directly about our expectations regarding income verification and use
of the Treasury Offset Program to recapture unauthorized assistance. We
hope this effort will educate tenants more clearly on their
responsibilities with respect to income reporting and our
responsibilities with respect to verification.
The streamlining we currently have underway for the tenant
certification form and borrower subsidy request (project worksheet) are
some of the most sweeping technological changes that Multi-Family has
undertaken. The latest phase of improvements to our primary database
include automation of borrower reporting, automation of payment
processing, and automation of debiting and crediting of borrower bank
accounts. All of these automation improvements eliminate the
possibility of human error when inputting data. These improvements
continually improve our ability to monitor Agency-financed properties.
Training and process improvements are areas where we intend to focus in
the upcoming fiscal year. Training will be undertaken on the new
regulation and budget reviews, process improvements will be undertaken
on the property classification system, State Office servicing goals,
and revamping of the supervisory visit procedure. The supervisory, or
triennial, visit encompasses a review of many management, physical and
occupancy areas, primarily because it is performed only once every
three years and tries to capture everything going on at a property.
During the upcoming year, we intend to break down this activity and
improve its efficacy, including the probability of separating review of
certain activities and increasing the frequency of reviews.
Overall, we anticipated most of the findings in the GAO report and look
forward to the opportunity to review the results from the State Office
surveys. We believe this information will provide us with a better
sense of trends in the field within the MFH programs and not just in
the RA program. We have found our own management control reviews and
State Internal Reviews to be of invaluable importance when considering
program policy changes. The GAO report confirmed some of the trends we
had previously identified.
USDA is committed to the future of rural communities and we continue to
work towards improving the RA Program.
Thank you for this opportunity to comment on the report. If you have
any questions, please contact John M. Purcell, Director, Financial
Management Division, at (202) 692-0080.
Signed by:
GILBERT GONZALEZ:
Acting Under Secretary:
Rural Development:
[End of section]
Appendix V: GAO Contacts and Staff Acknowledgements:
GAO Contacts:
Andy Finkel (202) 512-6765 [Hyperlink, finkela@gao.gov]
Katherine Trimble (202) 512-5033 [Hyperlink, trimblemk@gao.gov]
Staff Acknowledgments:
In addition to those named above, William Bates, Emily Chalmers, Jamila
Jones, Austin Kelly, Alison Martin, Marc Molino, and Julie Trinder made
key contributions to this report.
(250197):
FOOTNOTES
[1] The Section 515 Multifamily Direct Rural Rental Housing Loans
program provides subsidized loans to developers to build rental
housing. The Section 514 Multifamily Housing Farm Labor Loans program
provides grants and subsidized loans to build rental housing for farm
laborers, either off or on the farmer's property. Only "off-farm" labor
housing is eligible for rental assistance subsidies. All properties
must be established on a nonprofit or limited profit basis to receive
rental assistance.
[2] GAO analysis of the 2003 American Housing Survey. This figure
excludes cash renters, and rural areas include rural parts of
metropolitan areas and excludes urbanized parts of non-metropolitan
areas. The American Housing Survey is the largest, regular national
housing sample survey in the United States. The U. S. Census Bureau
conducts the American Housing Survey to obtain up-to-date housing
statistics for the Department of Housing and Urban Development.
[3] Rural Housing Service: Standardization of Budget Estimation
Processes Needed for Rental Assistance Program, GAO-04-424,
(Washington, D.C.: March 2004).
[4] 42 USC 653 (j)(7).
[5] Eligible tenants are persons with very low and low incomes, the
elderly, and persons with disabilities who are unable to pay the basic
monthly rent within 30 percent of their adjusted monthly income. Very
low income is defined as below 50 percent of the area median income;
low income is between 50 and 80 percent of area median income.
[6] Rural Development Instructions allow property owners to delegate or
assign management responsibilities, in full or in part, to a property
manager. Therefore, the term "property owner" used throughout this
report may also refer to a designated property manager, unless property
manager is specifically stated.
[7] Internal Control: Standards for Internal Control in the Federal
Government, GAO, (Washington, D.C.: November 1999).
[8] The consecutive 12-month period can begin only after the end of the
first year of the rental assistance agreement. RHS's proposed rule to
update the current RD Instructions gives the agency the authority to
transfer rental assistance that has not been used for a 4-month period.
(See 7 C.F.R. Part 3560.259, Proposed Rule).
[9] Rental assistance is used in conjunction with RHS loans, and is
provided directly to the owners of some RHS-financed properties. The
amount of rental assistance requested by the property owner is
subtracted from the amount of the property owner's monthly mortgage
payment. If the expected amount of rental assistance exceeds the amount
of the property owner's monthly mortgage payment, then RHS will issue a
rental assistance check to the property owner.
[10] We surveyed only RHS state offices with rental assistance
responsibilities. Also, in certain instances RHS has a single state
office for selected groupings of states. For example, the state office
for Connecticut, Massachusetts, and Rhode Island is located in
Massachusetts. Thus, the total number of state offices is less than 50.
[11] Based on a Connecticut local office portfolio of 34 properties and
920 rental assistance units.
[12] RD Instruction 1930-C, Exhibits F and F-1.
[13] In one local office we visited, RHS staff stated that they have
augmented their review process to include spot checks of tenant
documentation on an annual basis.
[14] The Improper Payments Information Act of 2002 requires that
agencies review all their programs and activities annually and identify
those that may be susceptible to significant improper payments. The act
further requires those agencies with improper payments exceeding $10
million to provide a report on the actions being taken to reduce the
payments.
[15] The Deputy Administrator of Multifamily Housing position was
filled in August 2004.
[16] Community Programs, a division of the Rural Housing Service, is
part of USDA's Rural Development mission area. Community Programs
administers programs designed to develop essential community facilities
for public use in rural areas.
[17] A national office official stated that local offices likely
interpret the Instructions this way because Exhibit F-1 in RD
Instruction 1930-C uses 25 percent as an example sample size.
Ultimately, according to the Instructions, the percentage of units a
local office should review is based on that office's "preference for
sample size," as long as local offices select at least six units for
properties with six or more units.
[18] This figure assumes a 20 percent or 25 percent sampling of tenant
household files. The figure also assumes that RHS local staff sample
tenant household files without replacement. That is, the portion of
files selected on an initial supervisory review will not be selected
for subsequent supervisory reviews.
[19] The 95 percent confidence interval for the 20.8 percent estimate
is from 11.3 to 30.2 percent. The estimated $4.7 million, reported in
"Rural Development, Rural Housing Service, Rural Rental Housing
Program, Tenant Income Verification, Gainesville, Florida, Audit No.
04004-3At," consisted of estimated overpayments of $4.4 million and
underpayments of $0.3 million. The 95 percent confidence interval for
this total amount extends from $2.4 to $7.0 million.
[20] We did not assess the validity of RHS's sample selection methods.
[21] A national office official stated that the benchmark was 10
percent when this database check was designed, but noted that MFIS had
been redesigned to give local offices the flexibility to establish
their own thresholds.
[22] USDA Office of the Inspector General Evaluation Report No. 04801-
0004-Ch, Rural Housing Service, Rural Rental Housing Program, Tenant
Income Verification Process, Washington, D.C., Feb. 1999.
[23] Through Section 453 (j)(7) of the Social Security Act,
"Information comparisons for housing assistance programs," 42 USC 653
(j)(7), HUD was given the authority to access nationwide tenant wage
information through the National Directory of New Hires. According to
RHS, its request for inclusion, however, came too late.
[24] 42 USC 653 (j)(7).
[25] Consistent with its use throughout this report, the term "local
office" encompasses RHS local, area, servicing, and field offices.
[26] The following state groupings have a combined state office:
Delaware and Maryland; Florida and the Virgin Islands; Hawaii, American
Samoa and the Western Pacific; Massachusetts, Connecticut and Rhode
Island; and Vermont and New Hampshire. Also, we only surveyed state
offices with rental assistance responsibilities. Thus, the number of
state offices we surveyed was less than 50.
[27] During our site visits, we learned that one of the two centralized
states selected was, in fact, a decentralized state for rental
assistance payment processing.
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